Within the biotechnology sector there pretty much hasn't been a hotter company over the last two weeks than Galena Biopharma (NASDAQ: GALE).
Galena, which focuses on developing cancer vaccines designed to enhance the ability of a patient's immune system to fight off the recurrence of cancer, has seen its share price move from $1.42 on May 26 to $2.24 as of the closing bell on Monday June 8. Overall, that works out to a 58% gain over just nine trading sessions, with shareholders experiencing just a single down day in that timespan.
So what's really behind Galena's explosion to the upside? While presentations at the American Society of Clinical Oncology, or ASCO, certainly kept the ball rolling, it's my belief that commentary from research firm Maxim Group appears to have incited the bulk of the buying.
Wall Street and ASCO give Galena a big boost
With Galena valued at just $1.42 per share, Maxim Group released a very bullish report on Galena, claiming the stock was a "buy" and its 2023 price target, using a combination of free cash flow for the firm, discounted EPS, and a "sum-of-the-parts modeled with a 30% discount rate," came out to $7 per share. If Galena could actually hit Maxim's target, we would be talking about a nearly 400% climb in its share price.
Why is Maxim so excited about Galena? Primarily it has to do with the company's ability to garner partnerships for its cancer vaccine products. Maxim's note suggests cancer vaccines are catching up to CAR T-cell therapies and "fetching comparable partnership deals from big pharma." The implication here is that continued positive data from Galena in terms of its lead product, NeuVax, which is being tested in a late-stage trial known as PRESENT as an adjuvant therapy to prevent the recurrence of breast cancer in patients with low-to-moderate HER2-expression, or its burgeoning therapies such as GALE-301 for endometrial and ovarian cancer, could lend to licensing or collaboration deals that supply Galena with much-needed cash and development/sales guidance.
Specifically, Maxim Group cites the impending interim analysis data release from PRESENT in the fourth quarter of 2015 or first quarter of 2016, and the data release concerning GALE-301 at ASCO as its greatest growth drivers. Maxim notes as well that Galena will be presenting phase 2 data on GALE-401 for thrombocytopenia at the European Hematology Association's annual meeting between June 11 and June 14.
Should you trust in Maxim's commentary?
The question that investors have to be asking themselves here is whether or not Maxim's commentary and the two publications presented by Galena at ASCO are really worth almost $133 million in additional market value?
On one hand, the ASCO data release was impressive. Although the early stage GALE-301 study designed to prevent the recurrence of ovarian and endometrial cancer in an adjuvant setting was geared toward safety and dose-optimization (as phase 1/2a studies should be), it did reveal intriguing early efficacy.
In the high-dose (1,000 mg) intent-to-treat cohort of 15 patients, just one had a cancer recurrence (6.7%) in a 9.8-month median follow-up compared to 11 of the 22 people in the control vaccine group which had a recurrence (50%). This worked out to a two-year disease-free survival estimate of 85.7% in the 1,000 mg GALE-301 arm and just 19.2% for the control vaccine group, as well as a 78% reduction in relative risk of recurrence. It should be noted that the p-value, or estimate that chance played a role, was pretty high at 0.09 in the two-year disease-free estimate, but given that this is early-stage data not focused on efficacy, it can be overlooked without too much worry at this point.
NeuVax also holds plenty of potential. In a five-year midstage study NeuVax led to a 78% reduction in the risk of cancer recurrence for select breast cancer patients compared to the placebo. As you can imagine, a lot is riding on the interim analysis update in the next three to nine months.
With cancer immunotherapies garnering so much of Wall Street's attention, it's not out of the question to assume that Galena is on the radar of a few Big Pharma or larger biotech companies.
But keep this in mind
However, investors also need to understand that analyst commentary rarely has any long-term effect on the price of a stock. While Maxim's commentary may have pushed Galena's share price up considerably over the last two weeks, its commentary likely hasn't changed the investment thesis of many of Galena's investors.
There are other points of concern beyond just the idea that analyst commentary tends to have a short-term effect on stock prices.
For example, Galena's acquired cancer products, Abstral for breakthrough cancer pain, and Zuplenz for chemotherapy-induced nausea and vomiting, may not make much of a dent into Galena's losses or free cash outflow. Zuplenz is set to launch in the third quarter, and Galena is projecting $15 million to $18 million in combined revenue for both drugs in 2015. Yet, Galena expected $11 million to $15 million from Abstral in its first full year on pharmacy shelves and wound up netting just $9.3 million. These two revenue generators may not be everything Galena's management had hoped they would be.
Cash burn is another serious concern for Galena Biopharma. Although Galena ended Q1 with $52.9 million in cash, this was only because it pocketed almost $41 million in underwritten common stock offerings during the first quarter. Common stock offerings can dilute investors, and based on its remaining cash, it probably won't make it much past mid-2016 by my best guess without another round of financing.
Lastly, it has pipeline risk. Much of Galena's valuation is tied to the success or failure of NeuVax. This isn't to say a failure of NeuVax means Galena's stock price would head to zero or anything, but NeuVax represents a substantial portion of premium inherent in the company's $360 million-plus valuation.
What should you do?
I believe Maxim has a valid point that Big Pharma could be interested in licensing Galena's products, but I don't believe they'll jump on its GALE-301 or GALE-401 data alone. Any smart pharmaceutical or biotech player is going to wait for the NeuVax interim analysis release before entering into a collaborative partnership with Galena.
The way I view it, investors shouldn't be in a rush to buy into Galena because there will be ample opportunities long after the interim analysis data is released. If you're on the sidelines and the PRESENT data isn't up to snuff, you'll be thrilled you didn't buy in. Even if you are on the sidelines and Galena shoots higher on positive data you'll be able to buy in and benefit from potential partnerships, the development of GALE-301 or GALE-401, and the actual sales of NeuVax if it's approved. Missing one binary event doesn't mean you'll miss the boat on Galena, which makes hanging out on the sidelines a potentially smart idea.
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Sean Williams has no material interest in any companies mentioned in this article.